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Cash Flow
The movement of money into and out of a business, showing actual liquidity rather than accounting profit.
Formula
Net Cash Flow = Cash Inflows - Cash Outflows
Operating Cash Flow = Net Income + Non-Cash Expenses + Changes in Working Capital
Free Cash Flow = Operating Cash Flow - Capital Expenditures
Definition
What is Cash Flow?
Cash flow measures the actual movement of money in and out of your business. Unlike revenue or profit, which are accounting concepts, cash flow shows what's really happening in your bank account.
A profitable company can run out of cash if customers pay slowly or inventory ties up capital. Cash flow tells the survival story that income statements don't.
Types of Cash Flow
Operating Cash Flow: Cash from core business operations. Investing Cash Flow: Cash spent on or received from investments and assets. Financing Cash Flow: Cash from or to investors and lenders. Free Cash Flow: Operating cash flow minus capital expenditures.
Why Cash Flow Matters
Cash is oxygen. You can survive losses but not running out of cash. Many profitable startups have died because they couldn't cover payroll while waiting for customer payments.
Investors scrutinize cash flow because it reveals business quality. Companies that convert profits to cash efficiently are more valuable than those with profit that never materializes as cash.
Example
Monthly cash movements:
- Cash from operations: +$50,000
- Cash from investing (equipment): -$20,000
- Cash from financing (loan payment): -$10,000
Net Cash Flow = $50K - $20K - $10K = +$20,000
Your cash position improved by $20K this month despite capital investments.
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